Here are my thoughts on this trade. Its a small cap 65M REIT, with net asset value around 113M. So trading $5/unit, but assets worth over $9, and its hard physical real-estate assets. It also pays a 7-8% yield also (paid monthly). Because of its real value, I believe it has limited downside, and upside nearly 80% from here if the buyout goes through. ------------------ Melcor REIT is a value asset play here IMO, with a catalyst. There are a lot of REITs with value plays right now, but the push from Firm Capital will create some pressure for Melcor to correct the share price. Now, with recovery equities finally getting a bid, it is a good time for Firm Capital to take action. Running at a Price to FFO of 6.7 (during a pandemic), I took a position. There is value in Melcor's portfolio of properties, which have had, in my opinion, aggressive write downs. Future write downs I do not believe will be significant, leaving us with a conservative NAV around $9 to $9.18/unit . Volume in Melcor is light. So light, it wont take much to drive Melcor back up closer to NAV. I am expecting either aggressive buy backs, a substantial bid to repurchase shares, or a complete takeover by Melcor Developments. Firm Capital has brought up some great points on Melcor Development's position in Melcor REIT. Melcor will take action. No one wants a legal battle. Melcor will take this REIT over and get this small headache off their backs. I see limited downside risk, and a major catalyst to bring unit holder value. At a $8.70/unit buyout, we could see up to 80% return at $5/unit, up to 50% at $6/unit, and up to 27% at $7/unit, with minimal downside risk. All at the same time, receiving a yield of 7-8% paid monthly. These are hard assets, paying a conservative yield. Prior to the pandemic, units were trading around $8-$8.30/unit. I do not like to put my capital at risk. This seems like a good short term asset play investment, and I will be willing to wait for it to play out. This is not investment advice. Do your own research. Full financials can be found on sedar.com. Their diversified portfolio can be found here: https://melcorreit.ca/our-portfolio/ Links to the news releases Letter from Firm Capital: https://finance.yahoo.com/news/fc-private-equity-realty-management-130000778.html 1st Melcor Reply: https://finance.yahoo.com/news/melcor-reit-response-press-release-183800350.html 2nd Melcor Reply: https://finance.yahoo.com/news/melcor-reits-news-release-issued-232200771.html
It took a few days to get my first post approved. A bit more has happened 1) Melor REIT has had a meeting(confirmed in another News release) and they have accumulated minority shareholder ideas. They are going to have a board meeting to discuss the next steps. https://finance.yahoo.com/news/melcor-reit-trustees-held-meeting-232800848.html 2) I have communicated with both Melcor and Firm Capital. Firm Capital seems adamant on the buyout, and Melcor is in agreement something needs to be done. Buyout is not out of the question. If no buyout, unit buybacks, divi increase, partial ownership increase by Melcor Developments, or many other ideas are being discussed and possible to fix unit price. In the end, I feel something is going to be done to return unit price closer to NAV of $9.18. Many insiders own Melcor REIT as well. Its in everyone's interest to get this done. This is not investment advice, but do your own due diligence to see if the risk/reward makes sense.
-Melcor REIT just increased the payouts by 17% and declared distributions for Jan, Feb and March. A good start. Cash flow estimates must be improving as they base payouts on ACFO, not AFFO or FFO. -Melcor may restart the NCIB but says they have to wait until the Blackout Period is complete. March 4th is earnings. I expect they will kick this into gear and increase FFO through buybacks, assuming the units remain depressed -The Board has also formally established an Independent Committee to examine and recommend regular renewals and/or amendments to agreements between Melcor Developments Ltd. and the REIT and other matters as directed by the Board. The Independent Committee will be chaired by independent and Lead Trustee Larry Pollock (I believe this has to do with Melcor Developments being paid on NAV, not true trading price of the units. A potential conflict of interest as Melcor Developments holds NAV on the books and has no incentive to increase trading price of the units) - Also worth noting, insiders are buying again, as recently as the 12th This does tell me there is improved cash flow. Last quarter they paid out 48% FFO and 73% ACFO (Actual cash from operations) Lots more to go as the recovery gets underway. Firm Capital and unitholders have been demanding action, and Firm Capital wants a buyout at $8.70/unit (which is below recently written down NAV of $9.18/unit) Still early but this is a good start. https://melcorreit.ca/2021/01/jan-feb-mar-2021-distributions/
Hey @RetiredCEO, Thank you for flagging this opportunity. I live in Edmonton AB where much of Melcors assets are located. I can confirm that they are high quality assets in areas where there is sufficient traffic (even with COVID protocols). I have taken a position here in the low 5s.
